5 U.S. Dividend Income Index Funds to Use for Retirement Income

Dividend income mutual funds can be a source of rising retirement income

Rising dividends can provide a hedge against inflation. One way to get exposure to dividend-paying stocks with a solid dividend history is to use a dividend index mutual fund or a dividend index exchange traded fund. One or all five of these mutual funds can be an appropriate addition to a retirement income portfolio if you use them in moderation. 

SDY—The SPDR S&P Dividend ETF

Man holding check.
Dividend income can be good in retirement. PhotoAlto/Alix Minde/Getty Images

The SPDR S&P Dividend ETFowns stocks that are known as the "dividend aristocrats." They're the highest dividend-yielding stocks listed in the S&P Composite 1500 Index. They've increased dividends every year for at least 25 consecutive years, producing consistent cash flow. This fund tracks the S&P 500 Dividend Aristocrats Index.

VIG—Vanguard Dividend Appreciation Fund

This dividend income fund is also available in a mutual fund version. John Lamb

The Vanguard Dividend Appreciation Fund owns stocks that have increased dividends in each of the previous 10 years. The stocks must also meet trading volume and liquidity requirements. About 185 stocks qualify and are included in this fund as of August 2017. The fund tracks the Mergent Dividend Achievers Select Index.

The symbol "VIG" refers to Vanguard's exchange-traded version of this fund. Vanguard also offers a regular mutual fund version with the symbol "VDAIX," signifying the Vanguard Dividend Appreciation Fund Investor Shares.

DVY—iShares Dow Jones Select Dividend Index Fund

Dow Jones Select
This fund consists of 100 of the highest dividend-yielding securities in the Dow Jones U.S. Index. Hiroshi Watanabe

The iShares Dow Jones Select Dividend Index Fund owns stocks that paid dividends in each of the previous five years up through 2015; 2016 was an off year, something to be wary of. The fund has a three-month average daily trading volume of at least 200,000 shares. Stocks are screened for inclusion in the index by dividend yield, dividend-per-share growth rate, and dividend payout ratio. This fund tracks the Dow Jones U.S. Select Dividend Index.

PFF—iShares S&P U.S. Preferred Stock Index Fund

Preferred Stock Index Fund
This type of index fund may work well with your portfolio. Spencer Platt / Staff

The iShares S&P U.S. Preferred Stock Index Fund owns shares of preferred stock. Most of the preferred shares of stock in this fund—about 85 percent—are issued by financial institutions such as banks and insurance companies. Any stocks included must have a market cap in excess of $100 million and volume in excess of 250,000 a day, and must have an indicated dividend. More than 200 stocks currently qualify and are owned by this fund, which tracks the S&P U.S. Preferred Stock Index.

DTD—WisdomTree Total Dividend Fund

Wisdom tree fund
This fund typically pays the highest dividends. Hiroshi Watanabe

The WisdomTree Total Dividend Fund owns ​over 1,000 U.S. stocks that are weighted by dividend rather than by market cap. This allows you to proportionately own more of the stocks that pay the highest dividends. Read ​WisdomTree’s investment philosophy to learn why they think dividends are so important. This fund tracks the Wisdom Tree Dividend Index

The Role of Dividend Producing Investments

Dividends are great, but keep in mind that they're not guaranteed. A company can reduce or eliminate its dividend at any time. The share price will usually go down when this happens. Always consult with a financial professional for the most up-to-date information and trends. For most people, dividend producing investments should be part of a holistic investment plan, not used a sole source of retirement income. This article is not investment advice and it is not intended as investment advice.